Are ICT companies perfectly positioned to become banks?

I have been writing quite extensively recently about how traditional banks are in trouble. They are unpopular and their IT estates are out of date. In this article I wrote recently a contact said if services such as PayPal, eBay, Amazon, Facebook and Twitter moved into banking, they would attract customers. Their systems already contain details about people and businesses and handle transactions and money.

Organisations in the telecoms sector are another potential for banking services.

Here is a guest blog on the subject from Pat Carroll, cybercrime expert and CEO of security technology company ValidSoft.

Why telecoms companies are poised to up the banking game

By Pat Carroll

"It's no secret that the telecoms industry has its sights set on the banking sector; it's an attractive proposition given the global shift towards a more digital approach to banking. Just recently, Canadian telco company 'Rogers' filed for a banking license so that it can issue its own credit cards and mobile wallets to its nine million-strong customer base . Rogers is also contemplating offering discounted monthly phone bills in return for use of its mobile wallet feature - nice touch! Similarly, Thai telco 'Tot' is developing a mobile based point-of-sale device. Just two examples of how telecoms companies are leveraging the mobile device to rise to the opportunities in the banking sector.

It's clear that the smartphone is already well on the way to becoming a primary device for payments - indeed 1 in 3 people are expected to do all their banking through a mobile device by 2020. However, success in this market will rely on solutions that are functionally rich, secure and above all, intuitive in terms of the consumer experience.

In the developing world, electronic exchange between mobile devices is already the primary means by which banking can take place. This is clear evidence of how telcos can successfully diversify, and an obvious expansion route for the future. The "last mile" has always the most difficult to conquer, and the operators are already in possession of this crucial delivery channel. Disintermediation will be rife and you can bet your bottom dollar that we haven't heard the last of how the mobile financial sector will eventually shape up.

Whilst functionality will dictate the order of play, trust will be the delineating factor. Expect that the fraudsters will concentrate their efforts on infiltration of this key channel, so maintaining trust against such adversity will be crucial. Reputations in this new, massive channel will be won and lost quickly. Studies show that customers already trust their telco/ mobile operator, but this needs to move up a notch or two as the telco companies seek to establish their credentials in financial services. Industry collaboration stands to help here, especially to tackle fraud, which is one of the main industry issues standing in the way of greater consumer trust. Industry bodies such as the Telecommunication UK Fraud Forum (TUFF), for example, are proving effective means of intelligence sharing, advising telcos to take a strong approach to security to meet consumer demand for fraud prevention.

Fraudsters target the weakest point in any payments process and they will see the movement of telecoms operators into this space as an opportunity to commit large scale fraud. The recent coverage of SimSwap fraud is just one such an example of how fraudsters have taken advantage of the discrepancy in security between banks and telcos.

Whether its telcos or banks that take control of the digital banking space the key will be to ensure security is up to scratch, and reassure consumers that appropriate measures are in place to prevent fraud across the industry. By taking a layered approach to security, incorporating a number of different checks based on the risk associated with the transaction, a solution can be achieved that offers very strong protection yet a totally intuitive and privacy sensitive customer experience. Rather than a cumbersome process of using passwords or tokens, security needs to be based on the smartphone and will likely include voice biometrics, so that customers can use their voice to authenticate and secure a mobile payment.

If telcos take advantage of the digital banking opportunity in the right way, they are well placed to hold significant market share in the new e-banking world. I look forward to seeing what developments 2014 will bring."